Appraisers are an important part of the home-selling process and rely on a host of factors to determine how much a home is worth. Appraisers perform this service for buyers and sellers in normal home sales, and for banks or lenders who have taken possession of a home in foreclosure. But because a home has gone into foreclosure doesn't mean it will appraise for a lower value, and, conversely, your house may not appraise higher just because it's not in foreclosure.
When determining the value of a home, appraisers consider several factors, including location, square footage, age, and number of bedrooms and baths. They take note of whether its owners have maintained the property and consider whether homeowners have made any significant improvements such as adding a master bathroom or renovating the kitchen. Finally, they study the sales prices that nearby similar homes have fetched. All of these factors help appraisers determine how much a home is worth.
Foreclosure and Appraisals
When a home falls into foreclosure, the property's new owner -- usually a bank or mortgage lender -- will schedule an appraisal to determine how much the home is worth. The appraiser will not automatically ding a home's value because it has been foreclosed. Appraisers will still consider a home's condition, location and size when determining its value.
The condition of a foreclosure can impact a home's value. Often, homeowners who face foreclosure do not have the financial resources to make repairs or perform routine maintenance on their homes. A broken dishwasher might remain broken. A window that no longer opens won't be repaired. Owners won't repair cracked driveways, leaking roofs or peeling wallpaper. These signs of neglect could lower a home's appraised value.
A series of foreclosures in a neighborhood might also lower the value of a home. Foreclosures often sell below market value. If too many foreclosures crowd a neighborhood, they can cause the value of other homes -- even those not in foreclosure -- to drop. The reason? The foreclosed homes will be "comps" for sellers in the neighborhood. Also, homebuyers might be more likely to spend $200,000 on a foreclosed home in a neighborhood instead of $250,000 on a similar home not in foreclosure. This might cause the owners of the home not in foreclosure to lower their asking price.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.